SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 14, 1996 Commission File No. 333-00768
HMC ACQUISITION PROPERTIES, INC.
10400 Fernwood Road
Bethesda, Maryland 20817
(301) 380-9000
Delaware 52-1888825
(State of Incorporation) (I.R.S. Employer
Identification Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes No N/A X
<PAGE>
HMC ACQUISITION PROPERTIES INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION (Unaudited):
Condensed Consolidated Balance Sheets - 3
June 14, 1996 and December 29, 1995
Condensed Consolidated Statements of Operations - 4
Twelve Weeks and Twenty-four Weeks Ended June 14, 1996
and June 16, 1995
Condensed Consolidated Statements of Cash Flows - 6
Twenty-four Weeks Ended June 14, 1996 and June 16, 1995
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of Results of 9
Operations and Financial Condition
PART II. OTHER INFORMATION AND SIGNATURE 12
- 2 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 14, December 29,
1996 1995
ASSETS (unaudited)
----------- -----------
<S> <C> <C>
Property and equipment, net.................................................... $ 515,779 $ 455,602
Investment in affiliate........................................................ 20,000 --
Due from hotel managers........................................................ 9,373 8,994
Other assets................................................................... 11,222 16,592
Cash and cash equivalents...................................................... 23,997 107,119
------- -------
$ 580,371 $ 588,307
============= =============
LIABILITIES AND SHAREHOLDER'S EQUITY
Debt ........................................................................ $ 350,000 $ 350,000
Deferred income taxes.......................................................... 12,982 9,718
Other liabilities.............................................................. 3,578 4,839
------- -------
Total liabilities........................................................ 366,560 364,557
------- -------
Shareholder's equity
Common stock, 100 shares issued and outstanding, no par value.............. -- --
Additional paid-in capital................................................. 214,374 214,374
Retained earnings (deficit)................................................ (563) 9,376
------- -------
Total shareholder's equity .............................................. 213,811 223,750
------- -------
$ 580,371 $ 588,307
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve Weeks Ended June 14, 1996 and June 16, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES........................................................................$ 21,993 $ 15,167
--------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization of property and equipment....................... 4,447 3,614
Base and incentive management fees (including Marriott International
management fees of $3,333 and $2,045 in 1996 and 1995, respectively)........ 3,653 2,387
Property taxes................................................................ 1,770 1,383
Ground rent, insurance and other.............................................. 923 857
------- -------
Total operating costs and expenses.......................................... 10,793 8,241
------- -------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 11,200 6,926
Corporate expenses.............................................................. (876) (616)
Interest expense................................................................ (7,535) (3,484)
Interest income................................................................. 461 197
------- -------
INCOME BEFORE INCOME TAXES...................................................... 3,250 3,023
Provision for income taxes...................................................... (1,113) (1,323)
------- -------
NET INCOME......................................................................$ 2,137 $ 1,700
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-four Weeks Ended June 14, 1996 and June 16, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
REVENUES........................................................................$ 44,452 $ 32,991
--------- ---------
OPERATING COSTS AND EXPENSES
Depreciation and amortization of property and equipment....................... 8,652 6,369
Base and incentive management fees (including Marriott International
management fees of $6,393 and $4,435 in 1996 and 1995, respectively)........ 6,926 4,765
Property taxes................................................................ 3,645 2,793
Ground rent, insurance and other.............................................. 1,411 1,457
------- -------
Total operating costs and expenses.......................................... 20,634 15,384
------- -------
OPERATING PROFIT BEFORE
CORPORATE EXPENSES AND INTEREST............................................... 23,818 17,607
Corporate expenses.............................................................. (2,022) (1,351)
Interest expense................................................................ (15,066) (6,973)
Interest income................................................................. 1,595 276
------- -------
INCOME BEFORE INCOME TAXES...................................................... 8,325 9,559
Provision for income taxes...................................................... (3,264) (3,919)
------- -------
NET INCOME......................................................................$ 5,061 $ 5,640
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Twenty-four Weeks Ended June 14, 1996 and June 16, 1995
(unaudited, in thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
Net income......................................................................$ 5,061 $ 5,640
Adjustments to reconcile to cash provided by operations:
Depreciation and amortization................................................ 8,652 6,369
Income taxes................................................................. 3,264 3,919
Changes in operating accounts................................................ 245 (977)
Other........................................................................ 350 221
------- -------
Cash provided by operations............................................... 17,572 15,172
------- -------
INVESTING ACTIVITIES
Acquisitions.................................................................... (61,405) (14,742)
Capital expenditures............................................................ (22,737) (10,443)
Other........................................................................... (331) 1,150
------- -------
Cash used in investing activities......................................... (84,473) (24,035)
------- -------
FINANCING ACTIVITIES
Dividend to Parent.............................................................. (15,000) --
Proceeds from borrowings, net................................................... -- 14,800
Repayments of debt.............................................................. -- (5,000)
Other........................................................................... (1,221) --
------- ------
Cash provided by (used in) financing activities........................... (16,221) 9,800
------- ------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................$ (83,122) $ 937
========== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 6 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying consolidated financial statements of HMC Acquisition
Properties, Inc. and subsidiaries (the "Company"), a wholly-owned indirect
subsidiary of Host Marriott Corporation ("Host Marriott"), have been
prepared by the Company without audit. Certain information and footnote
disclosures normally included in financial statements presented in
accordance with generally accepted accounting principles have been
condensed or omitted. The Company believes the disclosures made are
adequate to make the information presented not misleading. However, the
condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto for
the fiscal year ended December 29, 1995.
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include
only normal recurring adjustments) necessary to present fairly the
financial position of the Company as of June 14, 1996, the results of
operations for the twelve and twenty-four weeks ended June 14, 1996 and
June 16, 1995 and cash flows for the twenty-four weeks ended June 14, 1996
and June 16, 1995. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term
variations.
2. Revenues represent house profit from the Company's hotel properties. House
profit reflects the net revenues flowing to the Company as property owner
and represents hotel operating results less property-level expenses
excluding depreciation and amortization, real and personal property taxes,
ground rent, insurance and management fees which are classified as
operating costs and expenses.
House profit generated by the Company's hotels for 1996 and 1995
consists of:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Sales
Rooms.............................. $ 40,250 $ 32,188 $ 82,726 $ 62,132
Food & Beverage.................... 19,952 17,481 39,619 31,875
Other.............................. 3,910 3,435 7,751 5,742
------- ------- ------- -------
Total Hotel Sales................ 64,112 53,104 130,096 99,749
------- ------- ------- -------
Department Costs
Rooms.............................. 9,981 7,871 20,003 14,894
Food & Beverage.................... 15,140 13,497 30,350 24,590
Other.............................. 2,015 2,030 4,309 3,425
------- ------- ------- -------
Total Department Costs........... 27,136 23,398 54,662 42,909
------- ------- ------- -------
Department Profit.................... 36,976 29,706 75,434 56,840
Other Deductions..................... 14,983 14,539 30,982 23,849
------- ------- ------- -------
House Profit..................... $ 21,993 $ 15,167 $ 44,452 $ 32,991
========= ========= ========= =========
</TABLE>
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<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. In the first quarter of 1996, the Company acquired the 374-room Toronto
Delta Meadowvale hotel for approximately $25 million. In the second quarter
of 1996, the Company acquired, for $18 million, a 95% interest in a venture
that acquired the 400-room Pittsburgh Hyatt Regency. The property is
currently closed and is being converted to the Marriott brand. The property
re-opened in July 1996.
During the first quarter of 1996, the Company acquired a minority interest
in a joint venture with Host Marriott that holds a controlling interest in
two hotels in Mexico City, Mexico for $20 million. The Company has
subsequently sold its interest to Host Marriott for $20 million in the
third quarter of 1996.
4. During the second quarter of 1996, a $15 million dividend was paid to Host
Marriott, as permitted under the senior notes indenture.
5. All direct and indirect subsidiaries of the Company guarantee the senior
notes. The separate financial statements of each guaranteeing subsidiary
(each, a "Guarantor Subsidiary") are not presented because the Company's
management has concluded that such financial statements are not material to
investors. The guarantee of each Guarantor Subsidiary is full and
unconditional and joint and several and each Guarantor Subsidiary is a
wholly-owned subsidiary of the Company.
Combined summarized operating results of the Guarantor Subsidiaries are as
follows:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Revenues............................................. $ 3,881 $ 2,510 $ 6,807 $ 4,390
Operating profit before corporate expenses
and interest....................................... 1,694 2,436 3,589 3,062
Net income........................................... 1,138 2,694 1,543 3,070
</TABLE>
Combined summarized balance sheet information of the Guarantor
Subsidiaries is as follows:
<TABLE>
<CAPTION>
June 14, December 29,
1996 1995
---- ----
(in thousands)
<S> <C> <C>
Property and equipment, net...............................................$ 87,366 $ 63,044
Other assets.............................................................. 9,290 5,333
------- -------
Total assets............................................................$ 96,656 $ 68,377
=========== ===========
Debt......................................................................$ 49,175 $ 40,679
Other liabilities......................................................... 1,058 --
------- -------
Total liabilities....................................................... 50,233 40,679
Equity.................................................................... 46,423 27,698
------- -------
Total liabilities and equity............................................$ 96,656 $ 68,377
=========== ===========
</TABLE>
The operating results and balance sheet information include the pushed-down
effect of that portion of the Company's senior notes allocated to the
Guarantor Subsidiaries.
- 8 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
REVENUES. Revenues represent house profit from the Company's hotel properties.
The Company's second quarter 1996 revenues of $22 million represented a $6.8
million, or 45%, increase from the second quarter of 1995. Year-to-date revenues
increased $11.5 million, or 35% to $44.5 million. The Company's revenues were
impacted by improved lodging results and the addition of three full-service
hotel properties during 1995 and one full-service hotel property in 1996. (The
Company acquired a controlling interest in the Pittsburgh Hyatt Regency in April
1996, however, the hotel was closed for renovation and conversion to the
Marriott brand until July 1996 and as such had no effect on operations.)
The Company's hotels reported strong growth in revenue per available room
("REVPAR") for comparable hotels. REVPAR is a commonly used indicator of market
performance for hotels which represents the combination of the average daily
room rate charged and the average daily occupancy achieved. REVPAR does not
include food and beverage or other ancillary revenues generated by the property.
Improved results were driven by strong increases in REVPAR of 12% for comparable
units for both the quarter and year-to-date. On a comparable basis, average room
rates increased 7% for the 1996 second quarter and year-to-date, while average
occupancy increased three percentage points for both the quarter and
year-to-date reflecting the impact of the properties converted to the Marriott
brand during 1995. Management believes REVPAR will continue to grow in the near
future through steady increases in average room rates, combined with minor
changes in occupancy rates. However, there can be no assurance that REVPAR will
continue to grow in the future. The REVPAR growth contributed to a 10% increase
in comparable hotel revenues for the quarter and a 13% increase year-to-date.
OPERATING COSTS AND EXPENSES. Operating costs and expenses consist of
depreciation, amortization, management fees, real and personal property taxes,
ground and equipment rent, insurance and certain other costs. The Company's
operating costs and expenses for the second quarter of 1996 increased $2.6
million to $10.8 million and year-to-date operating costs and expenses increased
$5.3 million to $20.6 million. As a percentage of revenues, operating costs and
expenses represented 49% of revenues and 54% of revenues in the second quarter
of 1996 and 1995, respectively, reflecting the significant increase in REVPAR,
partially offset by the an overall increase in depreciation expense, incentive
management fees and the impact of the renovation of the Denver Marriott Tech
Center. Operating costs and expenses represented 46% and 47% of revenues for the
year-to-date 1996 and 1995, respectively.
OPERATING PROFIT. As a result of the changes in revenues and operating costs and
expenses discussed above, the Company's operating profit increased $4.3 million
to $11.2 million, or 51% of revenues, in the second quarter of 1996 from $6.9
million, or 46% of revenues, in the second quarter of 1995. Year- to-date
operating profit rose $6.2 million to $23.8 million, or 54% of revenues, in 1996
from $17.6 million, or 53% of revenues, in 1995. Several hotels, including the
San Francisco Airport Marriott, the Denver Marriott Tech Center, the Westfields
Conference Resort, the Vail Marriott Mountain Resort, which was renovated in
early 1995, and the Dallas Quorum Marriott posted significant improvements in
operating profit. The Fort Lauderdale Marina Marriott reported an overall
decrease in operating profit due to the Super Bowl being held in Florida in 1995
and the Portland Marriott reported an overall decrease in operating profit due
to room renovations during 1996.
- 9 -
<PAGE>
HMC ACQUISITION PROPERTIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CORPORATE EXPENSES. Corporate expenses increased $.3 million to $.9 million in
the second quarter of 1996 and $.7 million to $2 million year-to-date primarily
due to higher average assets for the Company during 1996, which resulted in an
increase in the allocation of corporate expenses to the Company by Host
Marriott. As a percentage of revenues, corporate expenses remained unchanged at
4% of revenues in the second quarter of 1996 and 5% of revenues for year-to-date
1996, compared to 4% for 1995.
INTEREST EXPENSE. Interest expense increased $4.1 million to $7.5 million in the
1996 second quarter and $8.1 million to $15.1 million year-to-date primarily due
to the increase in the level of debt and the interest rate as a result of the
December 1995 debt offering.
INTEREST INCOME. Interest income increased $.3 million to $.5 million for the
1996 second quarter and $1.3 million to $1.6 million year-to-date, primarily due
to the impact of proceeds from the December 1995 debt offering that have been
and will continue to be invested in the acquisition of full-service properties.
NET INCOME. The Company's net income for the second quarter of 1996 increased
$.4 million to $2.1 million, or 10% of revenues. Year-to-date net income
decreased $.6 million to $5.1 million, or 11% of revenues, principally due to
the change in interest expense discussed above, partially offset by improved
lodging results.
LIQUIDITY AND CAPITAL RESOURCES
The Company reported a decrease in cash and cash equivalents of $83 million in
the first half of 1996. This decrease is primarily due to the use of funds to
fund capital expenditures and acquire two full-service properties and a minority
equity interest in a joint venture controlling two hotels in Mexico City. Cash
flow provided by operations increased $2.4 million to approximately $18 million
for 1996 primarily due to improved hotel operating results.
Cash used in investing activities increased $60 million to $84 million for the
first half of 1996, reflecting capital expenditures of $23 million for the
renovation of certain properties and renewals and replacements on other
properties, expenditures of $61 million for the acquisition of two full-service
hotels and a minority equity interest in a joint venture controlling two hotels
in Mexico City, Mexico. The Company sold its interest in the joint venture to
Host Marriott during the third quarter of 1996 for $20 million.
In the first quarter of 1996, the Company acquired the 374-room Toronto Delta
Meadowvale Hotel for $25 million. In the second quarter of 1996, the Company
acquired, for $18 million, a 95% interest in the venture that acquired the
400-room Pittsburgh Hyatt Regency. The property was closed and converted to the
Marriott brand, prior to reopening in July 1996.
EBITDA
The Company's consolidated earnings before interest expense, taxes,
depreciation, amortization and other non-cash items ("EBITDA"), increased $7.1
million, or 77%, to $16.3 million in the 1996 second quarter and $11.3 million,
or 51%, to $33.4 million year-to-date. The increase in EBITDA is due to the
increase in comparable hotel EBITDA of 19% for the 1996 second quarter and 17%
year-to-date, and the addition of three full-service hotels in 1995 and one
full-service hotel in 1996. The Company believes that EBITDA is a meaningful
measure of the Company's operating performance due to the significance of the
- 10 -
<PAGE>
Company's long-lived assets (and the related depreciation thereon) and because
EBITDA can be used to measure the Company's ability to meet debt service
requirements and is used in the senior note indenture as part of the tests
determining the Company's ability to incur debt and to make certain restricted
payments. EBITDA information should not be considered as an alternative to net
income, operating profit, cash from operations, or any other operating or
liquidity performance measure prescribed by generally accepted accounting
principles.
The following is a reconciliation of EBITDA to net income:
<TABLE>
<CAPTION>
Twelve Weeks Ended Twenty-four Weeks Ended
June 14, June 16, June 14, June 16,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
EBITDA ..............................................$ 16,286 $ 9,192 $ 33,380 $ 22,068
Interest expense........................................ (7,535) (3,484) (15,066) (6,973)
Depreciation and amortization........................... (4,447) (3,614) (8,652) (6,369)
Income taxes............................................ (1,113) (1,323) (3,264) (3,919)
Other non-cash charges, net............................. (1,054) 929 (1,337) 833
------- ------- -------- -------
Net income..............................................$ 2,137 $ 1,700 $ 5,061 $ 5,640
========== ========== ========== ===========
</TABLE>
- 11 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time the subject of, or involved in, judicial
proceedings. Management believes that any liability or loss resulting from such
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits:
None.
b. Reports on Form 8-K:
None.
- 12 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMC ACQUISITION PROPERTIES, INC.
July 26, 1996 /s/ DONALD D. OLINGER
------------- ----------------------
Date Donald D. Olinger
Vice President and Corporate Controller
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from HMC
Acquisition Properties, Inc. Condensed Consolidated Balance Sheets and Condensed
Consolidated Statements of Operations and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001007076
<NAME> HMC Acquisition Properties, Inc.
<MULTIPLIER> 1,000
<CURRENCY> $
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Jan-3-1997
<PERIOD-START> Dec-30-1995
<PERIOD-END> Jun-14-1996
<EXCHANGE-RATE> 1
<CASH> 23,997
<SECURITIES> 0
<RECEIVABLES> 9,373
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 541,113
<DEPRECIATION> 25,334
<TOTAL-ASSETS> 580,371
<CURRENT-LIABILITIES> 0
<BONDS> 350,000
0
0
<COMMON> 0
<OTHER-SE> (564)
<TOTAL-LIABILITY-AND-EQUITY> 580,371
<SALES> (564)
<TOTAL-REVENUES> 44,452
<CGS> 0
<TOTAL-COSTS> 20,634
<OTHER-EXPENSES> 2,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,066
<INCOME-PRETAX> 8,325
<INCOME-TAX> 3,264
<INCOME-CONTINUING> 5,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,061
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
